According to the Local Commerce Monitor study, nearly 25 percent of local businesses have a customer loyalty program. And another 29 percent are likely to start one this year. What do they know that you might not? A customer rewards program can be an effective way to grow your business. The secret is incenting existing customers to come back and buy from you again. Learn more about customer rewards programs and why more small businesses are using them.

What Is a Customer Rewards Program?

Customer rewards programs work off the principle that people will repeat their behavior if they are rewarded for it. It’s the same reason children will do their homework first so they can earn time on their electronics. So, if you want customers to shop at your business, entice them with a reward so they come back.

A reward (or loyalty) program can be structured in many different ways. An ice cream store might punch a card every time you buy a cone. Once the card is full, you get a free cone. Other businesses may have a more sophisticated system of credits for each purchase that later can be redeemed for merchandise, free shipping, or first dibs at an upcoming sale. Think of them as frequent flyer miles for your business.

Some businesses find that the cost of these programs may be offset, in part, by savings. That’s because you’re not incurring new customer acquisition costs, which can be 3-10 times higher.

5 Things You Might Not Know About Customer Rewards Programs

Customer rewards programs have been growing in popularity. In fact, the average U.S. household belongs to 21 different programs. But here are some facts you may not have heard:

1. They may increase return on marketing dollars – CMO.com reports that you have a 5-20 percent chance of converting a new prospect. But the probability rises to 60-70 percent for existing customers. So programs that target current customers are likely to yield better results.
2. They are becoming an expectation – According to Smart Insights, 76 percent of shoppers expect some kind of recognition besides money. Increasingly, consumers expect a payoff for their continued patronage.
3. Focus on your brand loyalty – Getting free stuff is part of a customer rewards program but it’s not the sole focus. In fact, 77 percent of these transaction-based loyalty programs fail in the first two years. You want customer loyalty that’s based on more than free stuff. The program needs to be linked to your overall branding efforts. Some businesses do that by offering donations to local organizations as part of the program.
4. Apps are available to help you manage the program – Over half of businesses manually track their customer rewards program on paper. But there are automated programs that can help. They can even personalize your program to individuals so you can do things like offer a reward on the customer’s birthday. Here’s a list of 20 apps that are available.
5. They can produce new customers too – The payoff for a customer rewards program isn't just repeat sales from existing customers. You can also acquire new customers from referrals. Consider adding a referral component to the program. When a customer refers someone new, both the current and new customer get a reward.

A customer rewards program can be an effective way to grow your business by increasing your brand loyalty among current customers. Consider these factors to determine whether you should start one for your small business.